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ARLINGTON, Va. - Supermarkets will soon have access to more sales of healthcare-related products, thanks to a Dec. 14 ruling by the Internal Revenue Service that allows consumers to use Health Reimbursement and Flexible Spending Account (HRA/FSA) debit cards at all supermarkets and mass merchant outlets. The Food Marketing Institute (FMI) applauded the decision yesterday, calling it a "victory for consumer convenience."

December 18, 2006, 07:00 pm

ARLINGTON, Va. - Supermarkets will soon have access to more sales of healthcare-related products, thanks to a Dec. 14 ruling by the Internal Revenue Service that allows consumers to use Health Reimbursement and Flexible Spending Account (HRA/FSA) debit cards at all supermarkets and mass merchant outlets. The Food Marketing Institute (FMI) applauded the decision yesterday, calling it a "victory for consumer convenience."

Previously, the IRS held that consumers could redeem benefits with HRA and FSA debit cards only at drug stores until supermarkets and mass merchants install the technology to process these transactions, known as an information inventory approval system (IIAS). Under the new ruling, retailers will still be required to install IIAS technology, but they'll have a grace period.

"This frees [consumers] to obtain valuable health benefits at retail stores everywhere," said FMI president and c.e.o. Tim Hammonds in a statement. "FMI members have advocated for years that consumers should be able to use their FSA and HRA debit cards in supermarkets, responding to consumer frustration over the limits.

"FMI conveyed these concerns to the IRS, prompting the agency to issue the ruling clarifying that these limits would be lifted during the time period that supermarkets and mass merchants install the IIAS technology. In fact, once these systems are in place, customers will no longer have to retain paper receipts or submit them to their HRA and FSA plan administrators."

The IRS ruling will allow for debit card purchases of hundreds of millions of dollars in drugs and other products that qualify for the benefits at supermarkets and mass merchant outlets in 2007, according to FMI estimates.

The ruling is timely because debit benefit plan administrators were processing FSA and HRA debit card transactions under a 2003 IRS guidance document that appeared to them to classify supermarkets and mass retailers as "medical merchants." The IRS recently rejected this interpretation, and administrators announced plans to stop accepting debit card transactions from them on Jan. 1, 2007. Under the new ruling, they are allowed to continue accepting these transactions in 2007.